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Want to get your health tech startup funded? Know the territory and solve a problem

Health tech investors are looking for entrepreneurs that really understand the healthcare space and are solving the real problems doctors are facing. That may sound like an obvious statement, but according to Dr. Ricky Bloomfield, director of mobile technology strategy at Duke University and Claire Celeste Carnes, partner at Providence Ventures, plenty of entrepreneurs fail that test.

Bloomfield and Carnes were one half of a panel at the Venture+ Forum at HIMSS16 in Las Vegas that aimed to answer the question 'What are investors looking for in a health tech company?' HealthLoop CEO Todd Johnson and Health Expense CEO Vineet Gulati rounded out the panel, moderated by Andrew Colbert, managing director of Ziegler.

“One of the things when we meet with individuals is making sure that they’ve started with the problem in mind,” Bloomfield said. “We’ll see people who see the latest technology, whether it’s a wearable or a sensor, whatever it might be, and they’re going all around trying to look for a way to apply that technology. One of the best examples is Google Glass, where they released the technology and said, ‘Now look for good ways to use this.’ And now where is Google Glass?”

Gulati said that his healthcare payment startup found that a deep understanding of the industry was a big differentiator for them when they went up against other startups.

“If you don’t understand the complexity, that’s not going to result in either a valuation or a successful business in the end,” he said. “Whoever comes to the table has to understand that complexity and be willing to work through it. The benefits market is like an elephant, everybody understands a part of it, everybody has their unique point of view and everybody tries to attack a single point of value. Understanding the entire value chain is absolutely critical.”

Even when entrepreneurs make an effort to be knowledgable, the healthcare space is complex enough that they’ll sometimes fall short. Bloomfield says the easiest way to build that understanding is to enlist the help of actual physicians.

“I’ve worked with folks who showed me a product and they hadn’t engaged any physicians yet in the design or strategy of their solution, and I could immediately see several different holes in their product,” he said. “If they had engaged with any physician they would have pointed them out to them.”

Similarly, Carnes said, the best investments will be companies that have both knowledge and humility.

“Management team is very important to us,” she said. “Do they have both the maturity, experience in this space, and are they coachable and willing to learn about the intricacies of healthcare? No one’s going to get things right 100 percent of the time out of the gate, so there’s going to need to be some adjustments as we go to market. A management team that is confident and leading but can adjust to the market and is coachable is really one of the primary things we look for.”

The final thing that will help a startup get noticed is, of course, evidence that its technology works. As Bloomfield pointed out, this one can be a real challenge.

“There’s a huge Catch-22 there,” he admitted. “It takes a lot of investment to get to the point where your product can even show value, much less have a randomized control trial. This is why drugs cost billions of dollars to make, because they can invest that. I think it’s really hard. It’s a really hard position to be in. So sometimes anecdotal evidence is the best you get until you can partner with a large health system and get a lot more information.”